Want to give your kids a $50,000 18th birthday present?

Tuesday, 16 April 2019

If you've recently had a child or grandchild join your family, you're probably thinking a lot about their future.

Top of your list might be how you'll help them get started on what seems to be an increasingly expensive journey to adulthood.

There's good news. If you start saving from the time of their birth, you can expect to hand them $50,000 on their 18th birthdays, even if you put aside less than $50 a week.

Sorted's data shows that someone who saves $44 a week in a savings account earning 2.1 per cent interest would have $50,000 after 18 years.

* Pay your mortgage 10 years faster, save $300,000**

You could get this rate at most banks if you signed up to an account that offered more interest in return for no withdrawals, or one where you must maintain a pattern of deposits each month.

You could make it easier by opting for a higher-return investment. If the money was in an investment that paid 7 per cent a year, you'd only need to save $30 to reach that total.

You could find investments yielding higher returns through a kids' account on Sharesies, which offers exchange-traded funds, or by using KiwiSaver - although this locks in the money until the purchase of a first home.

These figures have not been adjusted for inflation.

Putting aside a small amount each week will make a big difference over your kids' lives.

Sorted's managing editor Tom Hartmann said it showed how much could be achieved over time.

'This is an example of a great idea that seems hard to make reality at the time, but the secret to success is in setting and forgetting,' he said.

'Work out how much you need to save each time you get paid, and set up an automatic payment to siphon away that amount before you even see it. Ideally it should go to an account that out of sight and out of mind, maybe at a different bank to the one you use for day to day banking.

'Let the savings tick away in the background, and before you know it you'll have a few hundred dollars in there, then a few thousand. Eventually compound interest will work its magic and accelerate your savings even faster.'

But money coach Hannah McQueen, of EnableMe, said even if people realised what was possible, many would not do it.

'I think it's more a case of too many people are living payday to payday, so the thought of putting $45 aside for the future seems almost indulgent, even if it does add up over time.'